A big run-up today left the Dow just below its record high. The Nasdaq has been playing like a broken record of late, and today, it broke another one, setting its 26th record high close of the year.
Our new Fool's Gold weekend magazine makes its third appearance tonight, featuring a special interview with CNBC's Mark Haines. MF Templar will also offer an analysis of the semiconductor equipment makers, focusing on the price/sales ratio, cash per share, and working capital vs. market capital in an attempt to ferret out the very best bargains. Within Fool's Gold will be our Weekend Research Center, featuring this week's many earnings reports and conference calls.
Indigo NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INDGF)") else Response.Write("(NASDAQ: INDGF)") end if %> surged $4 5/8 to $17 3/8 after it was announced that a group of investors led by George Soros had acquired a 22.5% stake in the printing technology concern. Apparently those following Soros into the stock have chosen to overlook the below-market performance for his Quantum fund over the past two years or so. Indigo NV is a company most often compared to Presstek <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRST)") else Response.Write("(NASDAQ: PRST)") end if %>, which was up $14 to $177 1/2 on its own. Both companies make technology that allows for cheap printing presses.
Carlton Lutts and the Cabot Market Letter also continues to fuel gains in companies he has recently started to promote. Today MRV Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MRVC)") else Response.Write("(NASDAQ: MRVC)") end if %> rose another $4 1/4 to close at $59 1/4, having been recommended by Lutz earlier in the week. Greenwich Air Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GASIA)") else Response.Write("(NASDAQ: GASIA)") end if %> also rose $4 to $36 on the Lutts news, and Corrections Corp. of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CXC)") else Response.Write("(NYSE: CXC)") end if %> was named by him as well. Lutts pushes something called heritage stocks, which he believes can produce 1000% returns. The only flaw we Fools see is his terrible long term performance. Although Lutts stresses his four-year record, a glance at anything over five years shows miserable underperformance of the averages.
The president and CEO of MasTec <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MASX)") else Response.Write("(NASDAQ: MASX)") end if %> explained today's $6 1/2 rise to $32 5/8 as a delayed reaction to the news of his company's acquisition of a Telefonica de Espana unit on April 30th. Apparently analysts did not realize the extent to which this transaction would help MasTec boast revenues going forward. When the company started to give out numbers today, the stock took off. The acquisition literally doubles the size of MasTec and creates an international telecommunications construction giant with deep roots in Latin America as well as Europe.
QUICK TAKES: WASHINGTON CONSTRUCTION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAS)") else Response.Write("(NYSE: WAS)") end if %> rose $1 5/8 to $10 after the company agreed to merge with ailing engineering firm Morrison Knudsen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRN)") else Response.Write("(NYSE: MRN)") end if %> yesterday ... CORRECTIONS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CXC)") else Response.Write("(NYSE: CXC)") end if %> popped $5 1/8 to $75 3/8 for the second day in a row after announcing it would build Virginia a new prison ... All right, people -- just because the Vice President of Operations for Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> defects to Number Nine Visual Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NINE)") else Response.Write("(NASDAQ: NINE)") end if %> does not alone justify a $3 1/8 to $11 1/2 rise today ... Amati Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMTX)") else Response.Write("(NASDAQ: AMTX)") end if %> rose $5 1/8 to $26 1/8 even as its competitors Westell Communications and Gandalf Technologies lost steam (see below).
The Sports Authority <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TSE)") else Response.Write("(NYSE:TSE)") end if %> continued to slide today, down $2 1/4 to $31 1/8, in advance of grim second quarter expectations due to the bankruptcy of a competitor. Herman's World of Sporting Goods will be liquidating its assets at bargain prices for the next few months -- not a good omen for the ol' Sports Authority. As no one is sure what the affect might be, people are anticipating the worst and trampling the shares of the sporting goods retailer.
Apparently someone finally realized that 46% of Cognex's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CGNX)") else Response.Write("(NASDAQ: CGNX)") end if %> business was with semiconductor manufacturers. Down $3 7/8 to $18 5/8, the company still trades at a premium to many of its machine vision, metrology and wafer inspection peers. After the company said that it had seen some weakness in orders from some of its customers, Adams Harkness & Hill analyst Fred Wolf trimmed his 1996 estimates to $1.02 EPS from $1.06 EPS and Prudential Securities analyst B. Alexander Henderson slashed his numbers eight cents to $1.00 EPS for 1996. The company made bearish comments at its annual meeting yesterday.
Gandalf Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GANDF)") else Response.Write("(NASDAQ: GANDF)") end if %> fell $1 7/8 to $16 3/8 after reporting disappointing earnings results this morning. The maker of Integrated Service Digital Network (ISDN) lines apparently found consumer adoption of this faster connectivity standard to be below expectations. Westell Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WSTL)") else Response.Write("(NASDAQ: WSTL)") end if %>, famous for a competing High-Speed Digital Subscriber Line (HDSL) standard, also fell $6 3/4 to $77 3/4 today after it reported disappointing earnings. Although there appears to be a lot of talk about these technologies, nothing is coming through on the bottom line.
QUICK CUTS: Capital equipment concern ESTERLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ESL)") else Response.Write("(NYSE: ESL)") end if %> told investors it would have a better than expected second quarter but the rest of the year was uncertain, causing the stock to lose $1 3/8 to $22 3/4 ... CONSILIUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSIM)") else Response.Write("(NASDAQ: CSIM)") end if %> dropped $2 to $7 after it reported yesterday it would have to restate prior quarters due to financial improprieties ... Morgan Keegan cut ISOLYSER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OREX)") else Response.Write("(NASDAQ: OREX)") end if %> from "strong buy" to "hold", knocking the stock down $2 to $12 ... COMPRESSION LABS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CLIX)") else Response.Write("(NASDAQ: CLIX)") end if %> fell $1 1/16 to $6 11/16 after reporting disappointing earnings results for the first quarter ... AUTODESK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADSK)") else Response.Write("(NASDAQ: ADSK)") end if %> slumped $4 3/4 to $35 3/4 after the company cited lackluster AutoCAD sales.
Automation & Machine Vision
Participate in the technology revolution by investing in the machines used to make semiconductors. At least this is how Carl Johnson and Ron Leckie of Infrastructure (www.infras.com) see it. For the last few months the two have provided the investment community with the most comprehensive coverage of semiconductor equipment companies imaginable. Although both have been down on the prospects for the large capitalization, front- and back-end equipment companies ever since the book-to-bill ratio turned negative, Johnson still sees a lot of opportunity in the automation segment of the semiconductor equipment universe.
"A lot of the things going through the foundries are getting more and more automated," Johnson begins. "It's like PRI Automation says -- In the fully automated fab of the future, you will only two employees, a man and a dog. The equipment will process the wafers, the man will feed the dog and the dog will keep the man away from the equipment." A fab, or foundry, is a plant where semiconductor chips are manufactured.
Automation is the most basic way you can improve the efficiency of the manufacturing of semiconductors, particularly in segments of the industry like memory and low-level logic that have come under significant margin pressure due to falling prices. Automation and metrology systems ordered for new fabs are not being canceled, but simply being added to existing fabs in a process called backwards migration.
"I think we are just in the formative stages of the growth curve of the automation business. Deep sub-micron processing, 0.35 microns or lower, will use wafers that are 8 inches or greater and cannot be handled by human beings. These wafers are worth upwards of half-a-million dollars per unit and cannot take any vibration or particles." The companies involved with automation in the semiconductor equipment world are names like ADE Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADEX)") else Response.Write("(NASDAQ: ADEX)") end if %>, Asyst Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASYT)") else Response.Write("(NASDAQ: ASYT)") end if %>, Brooks Automation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BRKS)") else Response.Write("(NASDAQ: BRKS)") end if %> and PRI Automation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRIA)") else Response.Write("(NASDAQ: PRIA)") end if %>.
"Tools in the fab are only used to process wafers 40% of the time. 60% of the time those tools are down. 20% of that downtime can be equally divided between issues -- the tool will be down because there is no material to load into the tool or there is no operator loading material into the tool." These are things that automation can solve and in theory boast the productivity of a plant by 50%. With the rumblings about larger wafers growing more prevalent, there is some significant investment going on to produce larger silicon wafers -- wafers that demand automation. "As every time there has been a dip [in semiconductor demand], we have jumped wafer sizes," Johnson notes, things look pretty good for the automation concerns.
Asyst is a standard mechanical interface to the machine with their wafer boxes and they also concentrate on mini-environments. PRI Automation does a lot of inter-bay work, using a carriage that hangs from the ceiling of the factory in order to move product from station to station. Brooks is on-tool wafer handling, which is Z-bot robots unload wafers from the cassette pod and put it in the process tool or wafer box.
Other automation companies include the automated test handlers, a universe that mainly consists of Cohu <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: COHU)") else Response.Write("(NASDAQ: COHU)") end if %>, Aseco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASEC)") else Response.Write("(NASDAQ: ASEC)") end if %> and Aetrium <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ATRM)") else Response.Write("(NASDAQ: ATRM)") end if %>. Metrology, or measurement and inspection equipment, also becomes important as smaller geometries require machine vision in order to ensure the integrity of the chips. Cognex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CGNX)") else Response.Write("(NASDAQ: CGNX)") end if %>, CyberOptics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYBE)") else Response.Write("(NASDAQ: CYBE)") end if %> KLA Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KLAC)") else Response.Write("(NASDAQ: KLAC)") end if %>, Robotic Vision Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ROBV)") else Response.Write("(NASDAQ: ROBV)") end if %> and Tencor Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TNCR)") else Response.Write("(NASDAQ: TNCR)") end if %> are the main names here. Whether it is more sophisticated chips, larger wafers, smaller geometries or flat panel displays, automation is vital to manufacture in a cost effective manner
The story here is a number of companies that can maintain decent earnings growth that have been sent to extremely low valuations. Automation companies at bargain basement valuations encourage consolidation. Given that PRI Automation almost bought Asyst a year ago, this is not completely out of the question. Most of these companies have working capital equal to 20% or more of their market capitalizations with significant cash on hand that will either be used to acquire competition or buyback shares if management has any sense. In Fool's Gold, our weekend News and Research magazine, we will be featuring these companies in our Sector Snapshot section. Come on this weekend and get a glance at each of these companies and their vital statistics.
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